2.3. Aligning IT with Corporate Strategy: Taking It One Step Further
Much has been written about aligning IT activities with corporate strategy. That is a good first step, but not the whole answer. Aligning IT with corporate strategy can imply a passive rolethe company charts its course and the IT department, the ready second mate, steps up and says, "I'm behind you 100%."Always nice to have that support, but what about the scenario where the IT department actually contributes to developing the corporate strategy? That's taking it one step further. In this chapter, we'll discuss ways you can work on contributing to corporate strategy, but we first need to understand what the current environment is like.
Many IT departments today are realizing they must run as other departments do in the organization. More and more, IT departments are being held accountable for metrics and budgets; some are charging IT costs to internal corporate departments to account for IT expenditures; some are comparing internal costs to outsourcing costs to determine where savings can be gleaned. Though IT departments are beginning to use standard business tools and metrics, there's still work to do in this area. Here are some interesting statistics from 2002 (according to The Business of I.T. Portfolio Management: Balancing Risk, Innovation and ROI, Meta Group White Paper, January 2002):
Given the lackluster success rates for projects (discussed in Chapter 1), you can see that making sure IT efforts are, at minimum, aligned with corporate strategies is importantthe statistics clearly show there is ample room for improvement. By working actively to create this alignment (and we're going to take it one step further later in the chapter), you can:
In this economic climate, IT departments are being required to deliver more with less. CIOs and IT departments are being asked (or required) to demonstrate a return on technology investments. Yet, looking at the statistics cited earlier, that's a difficult task. So how do we bridge the gap? Part of the answer is looking at how corporate strategy and operations interact so you can begin to line things up. Once you've started to align with corporate strategy, you may find opportunities to take it a step further and actually help drive corporate strategy. Once strategies are defined, you create your operational plan, which includes all of your IT projects and other operations. Yes, these are ambitious objectives, but if you don't stretch, you'll never grow.
2.3.1. Strategy Versus Tactical
Let's take a moment to discuss the difference between strategy and operations. A strategy is a high-level vision of where the company is headed. Typically it describes where it's headed, not how it will get there. The where (and sometimes why) is the strategic component. The how is the operational, or tactical, component. In this chapter, we'll use the terms operational and tactical interchangeably. Even though they're not exactly synonymous, they describe the ongoing operations and methods used to achieve strategic goals. For example, if you say that you want to go to Santa Fe, NM, clearly that's the where. It does not describe how you're going to get there. You could drive a car, take a bus, take a train, walk, ride a bicycle, take a plane, or even some combination. These are all various ways that describe how you'll meet your objective. It's important to make this distinction because as soon as you start describing how you'll get something done, you've moved into the operational or tactical realm. When trying to define strategy, continually check to make sure you're describing what must be done or where you're headed. Figure 2.1 depicts the ideal relationship between strategies and operations in an organization.
Figure 2-1. Corporate and IT Strategies
2.3.2. Competitive Advantage
During the heady dot-com days of the late 1990's, there were opportunities to use technology to develop competitive advantages because not all companies were able to implement technology-based solutions with equal finesse or speed. Largely because of the dot-com boom, technology as a business tool became a de facto or required element in all businesses. Today, just about every companysmall, medium and largeuses technology in some form or another. Some small companies may just have one or two computers running e-mail, an Internet browser, and office applications (word processing, spreadsheets, etc.). Medium and large companies must have a computer network, and employees must have e-mail and Internet access at minimum. In most cases, a wide variety of business applications must also be deployed and maintained. It's reasonable, then, to state that technology by itself no longer provides any meaningful competitive advantage because all companies are using IT to some extent.
That said, there are opportunities to develop competitive advantages within the IT arena. Let's look at three key opportunities for creating competitive advantage using technology.
188.8.131.52. Execution and Efficiency
How well a company is able to execute its strategic and operational plans can be a distinct competitive advantage. Any company that can gain significant efficiency in operational execution will likely beat out its competitorsuntil their competitors learn how to replicate those results. Technology can often be a key element in creating those operational efficiencies. Here's a great example. There was a time when the only way to get a letter across the country was by putting a first class stamp on it and popping it in the mail (U.S. Postal Service). Then one day, a company named Federal Express (FedEx) proposed something more radicalif you were willing to pay approximately 30 times the cost of a first class stamp, they would get your letter to the recipient overnight, guaranteed. They could do this because they'd implemented technology that allowed them to track every single package at every single stop. At a moment's notice, they could tell you exactly where that package was and when it would be delivered or the time of delivery and recipient's name. That's a great example of operational efficiency through technology. It was a distinct competitive advantage for a whilethat is, until the increased use of e-mail and the implementation of similar technologies at companies like UPS and the U.S. Postal Service (among others). At that point, the competitive advantage shifted away from the technology itself to the ability of the company to expertly utilize that technology more effectively than its competitorsthat's where execution and improved business processes play a role. It's possible that one company may still have a better technology implementation than the others, but if they all are using a similar technology, it comes down to who can utilize that technology more effectively. And as we all know, technology doesn't stand still, so the continued opportunity is to expand and reach into new areas with the same or new technology.
Efficiency gains through the effective use of technology may create a competitive advantage, but that type of competitive advantage is often short-lived. Today, there are a number of express delivery services all using some sort of tracking and routing technology solutions. How well they fare is now more a result of how well they utilize, manage, and leverage that technology rather than the technology itself.
184.108.40.206. Leveraging Technology to Lower Costs
As we've seen repeatedly in the past five or ten years, technology can clearly be used to lower costs and create a competitive advantage. Again, sometimes this advantage is short-lived, other times it has a longer shelf life. To continue the previous example, FedEx had an interesting propositionpay us a lot more for the security of knowing your letter will arrive tomorrow. Companies were willing to pay a lot more for the ability to know exactly where an important package or document was at any given time. As e-mail became more ubiquitous, companies discovered that e-mailing a document was faster, cheaper, and just as reliable as FedEx. Those companies leveraged technology to lower certain shipping costs. Did companies stop shipping things? No, there were still documents (and everything else imaginable) crisscrossing the globe in the belly of express delivery airplanes, but the number of letters it carried certainly may have dropped with the advent of e-mail. Of course, people have now become so accustomed to "instant" everything that express delivery companies are often used when a plain old stamp would do just fine, but that's another story altogether.
Major cost-cutting initiatives in recent years have also driven the expectation that technology should be leveraged to lower costs. Initiatives such as Total Cost of Ownership (TCO) have forced IT departments to look at how the very technology they're using can cost even less, so it's a double spiral: using technology to lower costs, lowering the cost of using technology. It is a prevalent trend and one that's not likely to change anytime soon.
Innovation using technology can lead to a competitive advantage. Depending on the nature of the innovation, that competitive advantage can be short- or long-term. An example of a short-term advantage is the Web-based retailers who in the late 1990's were able to deliver easy, secure online shopping for consumers. Amazon clearly got a running start and defined some of the standards for e-commerce used today. However, some of the technological innovations were replicated and some of the competitive advantage of technological innovation was reduced or eliminated. Amazon continues to look for ways to leverage technology to gain efficiency in execution and leverage technology to reduce costs knowing that its competitors will copy (or attempt to copy) its technology innovations.
Another excellent example is Netflix, the online movie rental company. They went head-to-head with bricks-and-mortar outfits like Blockbuster. Their innovative strategy used the Internet for movie renters to look for and reserve movies. They used the old-fashioned U.S. mail service to deliver movies right to the movie renter's door, which oddly enough, was an innovative idea. They used technology to manage their regional distribution centers to make sure that it took no more than 2 days to get a movie from any distribution center to the customer. Innovation using a mixture of approaches and technologies gave Netflix a significant competitive advantage. It took about 18 months before Wal-Mart and Blockbuster, among others, tried to compete with Netflix. While the jury is still out on how Netflix will fare, Wal-Mart recently announced they were handing over their movie rental business to Netflix to manage for them. Wal-Mart with all its technological savvy perhaps realized Netflix had the technology and the operational know-how that Wal-Mart wanted. Rather than fight them, Wal-Mart clearly decided to join them. The innovative use of technology provided a distinct competitive advantage to Netflix for a few years. As the innovative technology and technology-driven processes are copied, Netflix will need to focus on execution, efficiencies and costs to maintain a competitive advantage.
There may be other examples you can think of where technology provides a competitive advantage to a company, but chances are good that those examples ultimately fit into one of the three categories just mentioned. The expectation that technology itself will create the competitive advantage has been mostly relegated to the category of "short-term advantage", but the current expectation is that technology can and should help drive corporate efficiencies and lower costs.
With that as the backdrop, then, it's clear that your IT projects will have to meet one (or a combination) of these expectations. As you select IT projects for your department to undertake, these elements should be kept firmly in the forefront. However, as you'll see in a moment, you can take it one step further.
At the conclusion of Chapter 1, we briefly touched on the concept of portfolio management. Portfolio management is the management of all IT projects in the company and the alignment and allocation of resources for those projects. It's the latest in a long line of attempts to quantify, measure, and evaluate the contribution IT makes to an organization. Other departments, like sales, marketing, and production more clearly contribute to the company's bottom line. On the other hand, IT is often viewed as a financial "black hole", a necessary evil, or the source of the latest electronic gadgets. In some cases, IT is seen as a solid business partner providing "utility" services such as e-mail, Internet connectivity, and business application support. In rare cases, IT is seen as a strategic component of the business, but our goal in this chapter is to catalyze change in that area so your IT efforts can become more strategic in nature. Many IT projects are all about "keeping the lights on" and have no clear value proposition. Think of it this way: When you hire an employee, you usually don't look for someone who will come in, do an average job and go home. You want someone who will contribute to making your department and the company better than it is today. This attitude should hold for your IT projects. Yes, you have to get the job done, but you don't want to settle for just that. Later in this chapter and throughout this book, you'll learn more about how to identify strategic projects from operational ("keeping the lights on") projects so you stand a better chance of making a meaningful contribution to your company (and let's face it, to your own career as well). While there is a growing trend toward charging for internal IT functions as a way of exposing or accounting for the true cost of IT, it's not clear which way this trend will go. You might find it useful to calculate the internal cost and apportion it to the various corporate departments, but unless IT is adding value and seen as strategic, all you're really doing is buying yourself a bit of time or shifting costs around on the balance sheet. There's nothing wrong with accurately accounting for costs, but don't look to this to save your IT department.
IT managers need to manage differently in today's world. It's not enough to come up with a budget and do a great job with service levels. Successful IT managers understand that they must find ways to add value to the company and to effectively communicate that value to key corporate executives and managers. Otherwise, the long-held perception that IT is nothing but a cost center will continue to thwart genuinely innovative and strategic IT initiatives.